Glitnir hf. Financial Statements for the year ended 31 December 2013 Glitnir hf. Sóltún 26 105 Reykjavík Iceland Reg. no. 550500-3530 Contents Endorsement by the Winding-Up Board and the CEO ......................................................................................... 3 Independent Auditors´ Report ............................................................................................................................. 5 Income Statement ................................................................................................................................................ 6 Balance Sheet ...................................................................................................................................................... 7 Statement of Cash Flows ..................................................................................................................................... 8 Notes .................................................................................................................................................................... 9 ________________________________________________________________________________________________ Financial Statements of Glitnir hf. 2013 2 Endorsement by the Winding-Up Board and the CEO The Resolution Committee of Glitnir hf., formerly Glitnir Bank hf., ("Glitnir" or the "Company") was appointed by the Financial Supervisory Authority of Iceland (FME) on 7 October 2008 in accordance with the authority provided to the FME by Act No.125/2008 on the Authority for Treasury Disbursements due to Unusual Financial Market Circumstances (the emergency law). On this date the Resolution Committee took over all authority of the Board of Directors of Glitnir in accordance with the articles of the Company Law, including oversight of all treatment of its assets, as well as the handling of all other business. On 15 October 2008 a new bank, Íslandsbanki hf., was founded and domestic assets and deposits were transferred from Glitnir to Íslandsbanki hf. based on the decision of FME. Foreign assets and all liabilities except for domestic deposits remained with Glitnir. In May 2009 the Icelandic parliament passed a Bill of Legislation to amend the act of Financial Undertakings No. 161/2002. The Bill has rules about the winding-up proceedings of financial institutions. As of 1 January 2012, Glitnir´s Winding-Up Board assumed all tasks of Glitnir´s Resolution Committee, whose work had concluded. This change is in accordance with amendments to the Act on Financial Undertakings, adopted by the Icelandic parliament Act No. 78/2011. The Winding-Up Board´s principal tasks have been and continue to be: To serve as Glitnir´s Board of Directors and exercise the rights and obligations formerly held by the Board and shareholders' meeting; To administer Glitnir´s authorised activities under the supervision of the FME and the District Court of Reykjavík; To work towards obtaining the maximisation of the value for the Company's assets, to ensure that the Company's assets and rights are disposed of in the most cost-effective manner, that claims and amounts on deposit are collected, that no rights are lost which could be of value and that all necessary actions are taken to prevent damage to the Company's interests; To decide on creditor´s claims both by rank and amounts and ensure creditors are treated equally according to the law; and To convene and direct creditors' meetings, as deemed suitable, to present the measures taken by the Winding-Up Board. The aim of the Winding-Up Board is to launch a composition proposal to creditors of Glitnir. In November 2013 the Winding-up Board of Glitnir presented a proposal to the Central Bank of Iceland that is designed to fulfill the financial conditions in Icelandic law which stipulate that of monetary and exchange rate stability should not be jeopardized, as outlined by the Central Bank. The proposal was put forward in relation to Glitnir’s exemption request for its proposed composition. The Central Bank of Iceland received the proposal without any commitments other than to submit it to analysis. Glitnir is waiting for response from the Central Bank. According to the Income Statement, the profit for the year ended 31 December 2013 amounted to ISK 31,572 million. Profit due to rejection of claims and settlements amounted to ISK 34,450 million. Total equity as at 31 December 2013 was negative by ISK 1,465,977 million according to the Balance Sheet. To the extent that the estimated value of assets is based on inputs that are less observable or unobservable in the market, the estimation of value requires more judgement. Accordingly, the Winding-Up Board has applied considerable judgement in determining the estimate of values for certain assets, notably those relating to loans to customers, unlisted equity instruments, complex derivative products and set-offs. ________________________________________________________________________________________________ Financial Statements of Glitnir hf. 2013 3 To the extent that the estimated value of assets is based on inputs that are less observable or unobservable in the market, the estimation of value requires more judgement. Accordingly, the Winding-Up Board has applied considerable judgement in determining the estimate of values for certain assets, notably those relating to loans to customers, unlisted equity instruments, complex derivative products and set-offs. Endorsement by the Winding-Up Board and the CEO, contd.: Statement by the Winding-Up Board and the CEO The Financial Statements for the year ended 31 December 2013 have been prepared in accordance with the Icelandic Financial Statements Act. In our opinion, based on the fact that the Company is in Winding-Up procedure, the Financial Statements and the Endorsement by the Winding-Up Board and the CEO give a true and fair view of the development and performance of the Company´s operations during the year ended 31 December 2013 and its financial position at year end and describe the principal risks and uncertainties faced by the Company. As a result of the Winding-Up Board´s continuing work on the claims and court rulings, the claims register will change in the nearest future. The Winding-Up Board and the CEO have today discussed the Financial Statements of Glitnir hf. for the year 2013 and confirm them by means of their signatures. Reykjavík, 12 March 2014. The Winding-Up Board Steinunn Guðbjartsdóttir Páll Eiríksson Chief Executive Officer: Kristján Óskarsson ________________________________________________________________________________________________ Financial Statements of Glitnir hf. 2013 4 Independent Auditors' Report To the Winding-Up Board and Shareholders of Glitnir hf. We have audited certain parts of the accompanying financial statements of Glitnir hf., which comprise the balance sheet as at 31 December 2013, and the income statement and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Our audit was limited to the assets in the balance sheet and administrative expenses in the income statement. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Icelandic Financial Statements Act, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors´ Responsibility Our responsibility is to express an opinion on certain parts of these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the certain amounts and disclosures in the financial statements. The procedures selected depend on the auditor´s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements give a true and fair view of the assets of Glitnir hf. as at 31 December 2013, and of its administrative expenses included in the financial performance for the year then ended in accordance with the Icelandic Financial Statements Act. Emphasis of matter Without qualifying our opinion, we draw attention to the Endorsement by the Winding-Up Board and the CEO, which describes that Glitnir hf. is formally in winding-up procedure. Furthermore, we draw attention to note 2 to the financial statements, which describes that the